Amazon turns to Overstock for electronics

The e-tailer signs an outsourcing deal under which Overstock will handle inventory and shipping of some 700 electronics products and Amazon will garner a portion of the revenue.

January 2, 20024:43 PM PST

Amazon.com has signed another outsourcing deal, this time with online liquidator Overstock.com.

Under the terms of the one-year deal, which went into effect Wednesday evening, Overstock will handle inventory and shipping of some 700 electronics products and may expand the program later. Amazon will garner a portion of the revenue from each sale and will handle marketing and some customer service costs.

"This is a good deal for Overstock and a great deal for Amazon," said Patrick Byrne, chief executive of Salt Lake City-based Overstock. "It lets us extend the business model we've already created to about five times as many people. They get a good revenue share with little increase in actual cost to them."

Amazon representatives did not return calls seeking comment Thursday.

The deal between Seattle-based Amazon and Overstock comes on the heels of a similar agreement signed in April between Amazon and Ingram Book Group. As part of that deal, Ingram will be shipping books that Amazon does not normally carry in its inventory to Amazon customers.

Amazon Chief Executive Jeff Bezos said recently that the e-tail giant is looking for opportunities to outsource shipping of its products to cut costs. The move to outsource is something of a change of direction for Amazon, which built an expensive network of distribution centers to maintain control of its customers' shopping experience, from placing orders to shipping products.

As part of its deal with Amazon, Overstock will become something like a Marketplace seller on Amazon's site. Amazon's Marketplace project allows individual sellers to offer discounted books and CDs on the same product pages where Amazon offers the same items at retail prices.

In most cases, Marketplace sellers offer used copies of the items. In contrast, Overstock generally offers new items that it has purchased from dying retailers or from merchants trying to liquidate old inventory.

In some cases, where Amazon also has the item in its inventory, Overstock will be listed as a low-cost Marketplace seller on the item page. Where Amazon does not have the item in its inventory, Overstock will have a product page solely devoted to its products. Overstock started with about 40 items Wednesday night and plans to expand its offerings to about 700 items by early next week.

Amazon charges Marketplace sellers 99 cents plus 15 percent of the sale price for each item they sell through the service. Byrne declined to discuss the financial arrangements of the deal with Amazon but said that Overstock will be sharing revenue from its sales at a rate comparable to that of other Marketplace sellers.

Amazon can be expected to look for partners like Overstock to handle the shipment of large items such as televisions and other electronics products, said Jeetil Patel, a financial analyst who covers Amazon for Deutsche Banc Alex Brown. Still, Patel said he would like to see Amazon sign more partnership deals with bigger companies, along the lines of its agreement last year to host Toys "R" Us' Web stores.

"This is a nice, positive deal, but it's not a home run for Amazon," he said.